Robinhood Markets (HOOD +3%) is on an upward trend today following an upgrade to "Overweight" from "Neutral" by Piper Sandler. The trading platform has been recovering since last Monday's market correction impacted the stock. Despite reporting decent Q2 numbers last week that initially saw a positive response, the stock finished lower by the end of the trading day. However, investors soon focused on the quarter's positives, pushing the stock slightly higher.
Even after a significant rally from last week's intraday lows, shares of HOOD are still trading around 25% below their two-year highs, suggesting potential upside if a sustained rally occurs. However, HOOD's business model, which heavily relies on payment-for-order-flow (PFOF), means that market health is crucial for keeping traders active on the platform. Current price levels reflect concerns about potential market turbulence, which could affect HOOD's monthly active user (MAU) growth and primary revenue stream. Regulatory changes could also pose challenges.
Despite this, HOOD's strong quarterly performance last week highlighted its progress in strengthening its competitive edge in a competitive industry.
- HOOD's active trading market share has been growing. To better compete with industry giants like Charles Schwab (SCHW, Financial) and Interactive Brokers (IBKR, Financial), HOOD has introduced better margin rates, resulting in a 20% increase in margin balances. However, management acknowledges that more improvements are needed, such as enhancing its mobile and web platforms with more comprehensive charts.
- MAUs have risen for two consecutive quarters, growing by 9% year-over-year to 11.8 million last quarter, despite a drop from 13.7 million in Q1. An increase in Gold subscribers helped mitigate this decline. HOOD's Gold membership, which offers features like attractive APY on uninvested cash and lower margin rates, currently has only 8% of funded customers as subscribers, indicating significant potential for recurring revenue growth.
- International markets offer substantial opportunities for HOOD. The company is targeting the U.K. and surrounding European markets, where customers seek similar features as those in the U.S. By enhancing its international offerings, HOOD could create a lasting tailwind and diversify its revenue streams.
HOOD experienced a tremendous rally at the start of 2024, doubling its stock price at its peak last month before the recent market correction interrupted its uptrend. This pullback might be a temporary buying opportunity as HOOD continues to evolve into a leading brokerage platform both domestically and in Europe.
